Australian FOREX Daily Outlook 10/10/2006

North Korea successfully tests a nuclear weapons device. Currency markets digest the news and its implications. Bond market closed for Columbus Day in the US.

CURRENCY TRADING SUMMARY –10 OCTOBER 06 (01:30GMT)

• U.S. Dollar Trading (USD) was relatively unchanged against the majors in the overnight forex session as the absence of any economic data and the Columbus Day holiday meant the focus was on the nuclear test performed by the North Koreans. World leaders have condemned the testing citing regional instability after the events in the Korean Peninsula. San Francisco Federal Reserve President Janet Yellen commented that there had been a considerable slowdown in the US economy however, inflation risks still remained. In other markets, the Dow Jones index rose by 8pts and the NASDAQ climbed 12pts as the market absorbed the situation in North Korea. Crude oil rose by US20c to end at US$59.96 a barrel as rumours circulated of a possible greater cut in production by OPEC. Looking ahead, wholesale inventories are due out tonight.
  

• The Euro (EUR) traded within a low of 1.2588 and a high of 1.2612, before closing at 1.2600 in the New York session.
  

• The Japanese Yen (JPY) traded within a low of 118.86 and a high of 119.28 versus the dollar, before closing at 119.10 in the New York session. Looking ahead, private machinery orders are due out today.
  

• The Sterling (GBP) traded within a low of 1.8639 and a high of 1.8711, before closing at 1.8672 in the New York session. On the data front, PPI for the month of September came in at -0.3% compared to a 0.1% expectation. Looking ahead, UK trade balance is due out today.
  

• The Australian Dollar (AUD) traded within a low of 0.7419 and a high of 0.7451, before closing at 0.7442 in the New York session. Looking ahead, new RBA Governor speaks at a conference.
  

• Gold (XAU) strengthened by US$6.00 to US$580.70 an ounce spurred by safe-haven buying amid the North Korean nuclear tests.

TECHNICAL COMMENTARY

• Euro 1.2595

Initial support at 1.257 (76.4% retracement of the 1.2456 to 1.2941 advance) followed by 1.2559 (Jul 26 low). Initial resistance is now located at 1.271 (Oct 6 high) followed by 1.2769 (Oct 3 high).

• Yen 119.05

Initial support is located at 117.32 (Sep 29 low) followed by 116.89 (Sep 27 low). Initial resistance is now at 119.41 (Feb 3 reaction high) followed by 120.0 (Psychological round number resistance).

• Pound – 1.8670

Initial support at 1.8673 (Oct 6 low) followed by 1.8601 (Sep 11 low). Initial resistance is now at 1.8907 (61.8% retracement of the 1.9076 to 1.8633 decline) followed by 1.8919 (Sep 28 high).

• Australian Dollar – 0.7440

Initial support at 0.7414 (Oct 4 low) followed by 0.7405 (Jul 17 low). Initial resistance is now at 0.7495 (Oct 2 high) followed by 0.7557 (Sep 26 high).

• Gold – 577

Initial support at 560.13 (Oct 4 low) followed by 554.4 (Jun 15 low). Initial resistance is now at 580.96 (Oct 4 high) followed by 598.25 (Oct 3 high).